IMO-2020 ruling: Refineries seek compensation for huge loss incurred on furnace oil

April 07, 2020

ISLAMABAD: Refineries that are facing closures because of the post COVID-19 situation, which led to a massive fall in demand of POL products, have asked the government to look into their proposals...

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ISLAMABAD: Refineries that are facing closures because of the post COVID-19 situation, which led to a massive fall in demand of POL products, have asked the government to look into their proposals which were submitted to the government prior to COVID-19, seeking compensation because of the mammoth loss they incurred in the head of furnace oil mainly because of ruling of IMO 2020. To this effect, a protracted meeting of representatives of refineries was held here on Monday at the Petroleum Division with Special Assistant to PM on Petroleum Nadeem Babar. Top relevant officials also attended the meeting.

According to senior officials who were part of the meeting, Pakistan refineries braved a huge loss when International Maritime Organization (IMO) ruled that from 1 January 2020, marine sector emissions in international waters be slashed. The marine sector will have to reduce sulphur emissions by over 80pc by switching to lower sulphur fuels.

In engines of ships, IMO reduced the sulphur content by less than 0.5 percent but in Pakistan as per specs, sulphur contents stand at 3.5 percent, which is why Pakistani refineries experienced a huge loss and price of HSFO (high sulphur furnace oil) tumbled manifold. And more importantly the power houses that run on furnace oil as fuel were made non-functional, which is why the usage of furnace oil in the country has tumbled.

Right now, the Pakistan National Refinery and Byco are non-operational mainly because of the less demand of POL products due to the lockdown and Attock Refinery Limited has also closed down its biggest plant and currently running and refining only 13,000 barrels per day crude oil. PARCO is also running at its minimum capacity.

In the meeting, the refineries also reiterated their commitments for upgrade but at the same time they sought an enabling environment for turning them into profit making entities so that they could spend on upgrade process and install hydrocrackers to convert furnace oil into diesel. The officials said that refineries want compensation for the loss incurred on account of ruling of IMO 2020 through price mechanism. The refineries also suggested to the government to bring the ex-refineries' price at par with the import price of POL after taxes. The government side, however, asked the representatives of refineries to come with more doable suggestion for upgrade with time line.

The officials said the government wants the refineries to upgrade themselves and those refineries which will not do so, they will be closed down and the government will give during the time incentives which were announced for new refineries to be built, to those existing refineries which will go for upgrade.

In the meeting, refineries agitated saying that oil marketing companies (OMCs) are still importing petrol despite the ban imposed by the Petroleum Division. The government imposed the ban on March 25, 2020 on import of motor gasoline (Petrol) and crude oil from April 2020 onwards and directed all oil marketing companies (OMCs) to lift the petroleum products from the local refineries as the demand of POL products has drastically gone down in the wake of lockdown in the whole of Pakistan, including AJK and Gilgit Baltistan to limit the outbreak of coronavirus (COVID-19). The refineries were asked not to import crude oil as well.

The representatives of refineries mentioned that one private oil marketing company (OMC) has just imported a ship of petrol despite the ban from April and that the OMC, instead of lifting POL products of local refineries, was importing the POL product. In the meeting, it was also assured that a certain OMC was not being allowed to berth its ship. However, the official of the said OMC says the import of the ship was already planned and because of some technical constraints, it is not berthed as there is a long queue of ships having various articles but it will later be berthed on its turn once the queue vanishes.

The sources in the refineries told The News that though with the restoration of goods transportation in the ongoing lockdown, sale of petroleum products has increased, but now it is high time that OMCs should be bound to lift the products of local refineries, otherwise the closure of refineries is feared and in turn it would expose oilfields to huge damages because of not lifting of crude oil from the local fields while supply of other products of gas and LPG from the wells could be jeopardized.

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